The U.S. Securities and Exchange Commission, Tesla Inc. (TSLA) and the electric car maker’s CEO Elon Musk have reaffirmed that they are happy with the terms of their previously agreed settlement and have urged a federal judge to get it approved as soon as possible.
In a joint filing, all parties involved described the punishment for Musk tweeting about his plan to take Tesla private as “fair” and in the best interest of investors. This was despite the CEO mocking the SEC just one week after they first agreed to the settlement.
The tech entrepreneur described the SEC as the “Shortseller Enrichment Commission” in a tweet and sarcastically praised the agency’s work. Fortunately for Tesla and its suffering shareholders, the federal regulator appears to have overlooked that blunder.
Just want to that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!
— Elon Musk (@elonmusk) October 4, 2018
It is now up to the U.S. District Judge Alison Nathan in Manhattan to determine if the proposed punishments are suitable. SEC settlements haven’t met much resistance from courts since a judge’s decision to reject a settlement between the SEC and Citigroup Inc. (C) was overruled in 2011, Bloomberg reported.
“The proposed settlements in this case are fair, reasonable, and will serve the interests of the public and investors.” lawyers said in the filing. “Mr. Musk and Tesla have agreed to undertake a number of corporate governance measures specifically tailored to prevent future violations of the type alleged by the SEC here.”
Tesla shares rose 1.10% in pre-market-trading.
Terms of the Deal
1. Civil Penalties
The proposed deal will see Tesla and Musk pay $20 million each in fines, money that the SEC intends to distribute to investors affected by the CEO's tweet about taking the company private.
2. Musk Resigns as Chair
In addition to the monetary penalties, the settlement outlined several corporate governance requirements, including Musk resigning from his role as chair of the board at Tesla. According to the filing, Musk can only reapply for the position after three years, providing that his reappointment is approved by the majority of shareholders.
3. Two New Directors
Besides finding a a new chair, Tesla will also have to add two additional independent directors to its board.
4. No More Rogue Tweeting
Tesla will also establish a new board committee responsible for disclosures. The firm will also oversee and pre-approve Musk’s Tesla-related written communications that "reasonably could contain information material to the company or its shareholders." A securities lawyer will be hired to oversee the enforcement of this.